FT Logo

Copy article

FT Editor Banner

Wider implications of new Skipton BS 100% mortgage offering

Journalist: Ima Jackson-Obot, FTAdviser

ended 10. May 2023

Hello advisers, 

I am working on an article about the mortgage market, following the announcement by Skipton BS.

What do you make of Skipton's new deposit-free mortgage offering? Would you recommend it to clients? Why/Why not?

While there might be a few 100% mortgages around this offering from Skipton is big news. What makes Skipton's offering different from other 100% mortgages? Will it herald in more 100% mortgages/does it mark a return of 100% mortgages? 

If so, how will they differ from the previous types of 100% mortgages which were available around the time of the financial crisis?

What other types of 100% mortgages are currently available?

What type of person does a 100% mortgage suit? Pros and cons of this type of mortgage.

Kind regards

Ima

15 responses from the Newspage community

Copy all

Copy

Editor
Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Of course, with any 100% mortgage, there will always be fears of negative equity. This is especially so in an environment of rising rates and nervousness around the economy more generally. However, more product innovation in the mortgage market is good news for clients who have more options to chose from. The Skipton product is different as it doesn’t require a guarantor like the other zero equity loans. However, it does cap your repayments at 100% of your rental payments amount. This could limit lending in some parts of the country. Understandably, this is one tool the lender is using to ensure affordability and mitigate its own risk of delinquent loans and should be applauded, not criticised.
Copy

Editor
Ross Lacey
Director & Independent Financial Adviser at Fairview Financial Management
We feel this is good news and certainly something we'd recommend where appropriate. Borrowers would still need to meet the affordability tests and be mindful of the increased likelihood of falling into negative equity. Something we'd like to see from any lenders who decide to offer 100% mortgages are also product options that borrowers can fall back onto at remortgage time. This can provide a safety net to help borrowers avoid being forced to move onto the standard variable rate if they are remortgaging at a time that coincides with being in negative equity. Ultimately, 100% mortgages won't help everybody but there's certainly a portion of aspiring homeowners who this kind of product is perfect for ie. high earners currently paying high levels of rent. They have the ability to make the monthly payments on a mortgage but can't save enough for the deposit.
Copy

Editor
Justin Moy
Managing Director at EHF Mortgages
We need to see this option as more of a niche product, rather than a mainstream opportunity that every tenant will want to take advantage of. The lack of deposit is a great feature, but the amount that can be borrowed will be limited and there is no 'free and easy' lending. But for those who can show high rental costs experience, and have good levels of income, this can be an ideal way of getting onto the property ladder. The 5yr Fixed deal does also provide enough time for properties to potentially lose a little value in the short term, and make up ground over the next few years.

The unique element of this product is the lack of family collateral, unlike other lenders who require some cash deposits with the lender and/or a security charge over the parent's property. This is also positioned at those who have rented for at least 12 months, so can show some background household bill payments, not those still living with family.
Copy

Platinum
Elliott Culley
Director at Switch Mortgage Finance
The product on offer from Skipton is a cautious first step back into the 100% mortgage market with the memories of 2008 prevalent in the design of the product. The current offering will restrict the amount a person can borrow so that the mortgage payment cannot be any higher than their current monthly rent. This is an understandable risk measure to ensure there is less chance of a client defaulting. In most cases, it will mean the client will not be able to buy a property to the same value they currently rent. I have a client currently renting a property valued at £330k for £1400p/m, but under Skipton's criteria, he would only be able to lend £261k. This will negatively impact clients living in more affluent areas, but also joint borrowers, whose income could be substantially higher than a single applicant, and under normal affordability could borrow a greater sum. If rates drop this product could become popular, with more lenders coming to the market offering greater competition.
Copy

Premium
Benjamin Blyth
Director at Houz Mortgages
The most significant condition of the mortgage is that the monthly payment cannot be higher than the rent currently being paid. This means that buyers will likely need to downsize, move to a cheaper area of the country, or already be renting beyond their needs to be eligible for the scheme.

According to HM Treasury, the average house price for a first-time buyer in January 2023 was £241,000. To buy at this level with the new mortgage from Skipton BS, the current rent being paid would need to be £1,290 per month. However, this amount would only be realistic if renting a 3-4 bedroom house, and £241,000 would not buy a 3 or 4-bedroom house in most parts of the UK.

The median rent paid in the UK, according to ONS, is £800 per month. This amount would only be enough to buy a house for £149,000 on Skipton's new scheme - almost £100,000 short of the average house price.

Skipton means well, but I think it's unlikely this will fly off the shelves simply from the perspective of practicality.
Copy

Jamie Lennox
Director at Dimora Mortgages
The scheme sounded great on paper, but in reality is unlikely to live up to expectations for large parts of the UK. The key part of criteria which will rule out a large proportion of buyers is that the new mortgage payment can’t be any higher than their rent payment for the last 6 months.

In our local area a typical first home may rent out for circa £950pm. Skipton will only lend £177k, but to buy the property would cost in excess of £250k.

Realistically unless mortgage rates come down dramatically this isn’t going to open the door to many first time buyers in the south of England.
Copy

Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
I've got no problem with a 100% mortgage, done well. The risk to the lender and the borrower isn't massively reduced by adding a 5% deposit, yet even a 5% deposit is now an eye-watering sum on the average UK home, so a 100% mortgage makes a lot of sense. However, Skipton is not large enough to have the required impact on the market alone and it will take other lenders to do similar innovative deals to make any real shift in the market.
Copy

Luke Thompson
Director at PAB Wealth Management
I think that Skipton's new 100% mortgage offering could be a good thing for first time buyers. There are plenty of caveats to assist with affordability and the fact that a five year fix has to be taken should help with the issues around potential negative equity.

Like with any mortgage the recommendation will need to come down to the individual's circumstances but as a way for people who may never have been able to get on the property ladder to do so and it could be a game changer.

The big difference around previous 100% mortgages from the past is that the rules around this product are much stricter than we have seen in the past and this should in theory help to prevent the issues that were previously seen.

A 100% mortgage will suit someone who is struggling to raise a deposit and intends to stay in the property they are purchasing for the long term. They most definitely not be for buyers who will be looking to move within a couple of years.
Copy

Rhys Schofield
Brand Director at Peak Mortgages and Protection
Clearly this mortgage is music to the ears of renters stuck in an endless cycle of being cleaned out by the landlord each month with no prospect of saving for a deposit. It's profoundly good news that Skipton have done something to address this very real need. The alternative? What happens when all these long- term renters retire, not owning their home, with limited social housing options and on a now reduced income?
Copy

Ross McMillan
Owner/Mortgage Advisor at Blue Fish Mortgage Solutions
Skipton's innovative 100% product should be applauded and is unquestionably great news for first-time buyers in particular.

Whilst the criteria itself may mean that very few potential buyers may be able to access this particular mortgage, it's very introduction is hopefully a sign of things to come but undoubtedly a clear indication of the strength and depth of confidence in the UK housing and mortgage market.

It's a huge leap forward and can provide hope to the 1000s of people who can afford sky-high rental prices but only at the expense of their ability to save a sufficient deposit to allow them to ultimately own their own home.

The upshot of this could mean that the common thought that renting equates to almost throwing money away could become a thing of the past, as now a person's ability to maintain this could, in fact, be the key to realising their home ownership ambitions.
Copy

Ashley Thomas
Director at Magni Finance
I can see the arguments for and against 100% mortgages. I think it would be too risky for both the client and the lender in most situations. If there is negative equity then there would be consequences as we have seen in the past.

Where it may work is for high earners and if the income multiple is very cautious as it is unlikely that they would have issues paying the mortgage. If house prices reduce and they have negative equity, they could keep the property for the long term until they increase again as they tend to over the long term.
Copy

Alastair Hoyne
CEO, Finanze Capital at Finanze Capital
I think Skipton’s new 100% mortgage offering is fantastic in principle and I would like to see it be fantastic in application.  I have already had a number of clients enquire about this, I think this should be recommended with caution as it can be a great way for first time buyers to get on the property ladder but care needs to be taken to ensure no one gets in negative equity. Skiptons 100% mortgage is different from others in the market as it doesn’t require a guarantor and all the rest do. I think other lenders will be watching this market to see how it plays out and if all goes well, I can see more lenders joining this market in the next year or 2. I think a lot more consideration is going in the underwriting compared to in 2008 where such things as self-certification mortgages were allowed.
Copy

Austyn Johnson
Founder at Mortgages For Actors
I like to be able to recommend this IF it fits, but not just because they want to keep their deposit money. This will best be used for people currently with a high rent that cannot save for a mortgage. They will be able to move in and dramatically overpay. If there is no chance of overpaying, then clients may get stuck should a negative equity even happen. Thorough fact-finding will be extremely important.
Copy

Gary Bush
Financial Adviser at MortgageShop.com
I need to say it again the 2008 crash didn't occur due to UK based 100% or greater mortgages, the blame for that was from other parts of the globe in our opinion. The re-emergence of 100% mortgages, albeit at the moment with a rather awkward rental history affordability modeling, is great to see. It's hopefully the first step to the UK doing what it does best in the mortgage industry, innovate to get around an obvious problem. From the look of the new Skipton deal I see a great rate and hopefully once tested we'll see some approvals having been achieved - we do however think that the lender will need some assistance from the broker community to gain the numbers needed to properly assess and evaluate this scheme. It's a little tricky for applicants to get to grips with in gaining a mortgage offer.
Copy

Hannah Bashford
Director at Model Financial Solutions
I think this is a great step forward from Skipton and I applaud innovation in this area but in reality, I'm not sure that the numbers stack up.

I ran an example for a property in Greater London- 2 bedroom flat £1425 per month rental on a term of 35 years and the maximum borrowing is £265,679 on the Skipton track record mortgage but that property was recently valued at £360k for a remortgage.

It is house prices themselves that are the bigger issue and until they become affordable we will continue to see people struggle to buy the property they need/ want.